Friday, September 9, 2011

Citi brought a dozen semiconductor suppliers to its Technology Conference; what came out were common themes about an extended slowdown in demand and capex, good news from Samsung, and the status of 28nm ramp-up, 450mm wafer-size transition, and EUV lithography. The info below came out of notes from Citi analysts Tim Arcuri and Wenge Yang.

Downturn extends into 2012, for most. Once upon a time 2Q11 was seen as the worst of the current downturn; then orders pessimism pushed that flip date out to 3Q11. Now it looks increasingly like the sector won't see any relief at all this year.

After an expected -20% sales dip in 3Q11, Teradyne is being "cautious" on 4Q11 guidance, seeing "seasonal weakness starting in October" and "broad-based weakness" in tester orders (except wireless, thanks to Apple exposure). Citi's Wenge Yang notes that "all major players" in OSAT are cutting their capex in 2H11, which partly explains the soft SoC tester buy-in rate in 2H11.

Applied Materials, too, is "more cautious" about its fiscal 1Q12 (Jan.2012) orders being up, partly attributed to Intel's reported freeze of Fab 24/22nm (Ireland) orders. To the positive, though, most SSG orders in the October quarter (fiscal 4Q11) are technology buys since wafer capacity expansion is "essentially nil."

Not everyone's so pessimistic, though. Amkor feels "pretty good" about overall demand, thanks in part to its exposure to communication (smartphones) and gaming (seasonally strong). Utilization rates actually inched up above 80% in 3Q11, with "no notable inventory issues from most of its customers." KLA-Tencor wouldn't offer specific estimates about 4Q11 orders, but it did add some color to previous comments that implied "meaningful" growth, saying that it's a "reasonable scenario" since 4Q usually encompasses "positive seasonality." ATMI saw softer-than-expected foundry wafer starts in 3Q11 (-3% to -5% Q/Q instead of flat), but sees stabilizing forecasts from key customers into 4Q11, though they have yet to show anything "incrementally" better. Veeco's 4Q11 should be ok, but expiring Chinese subsidies could snap back orders in 1Q12.

And there's some growing hope on the horizon. Lam Research and Novellus confirmed Citi's report that Samsung is pulling in some tool shipments, "technology-related orders on the foundry side," to end-of-2011, which will help beef up some suppliers' 4Q numbers. ASML also supported the idea that orders have to rise in 4Q, or else customers will put at risk their stated 1H12 spending and technology objectives.

Citi's Tim Arcuri continues to point to data indicating WFE capex run-rate bottomed out in 3Q11 at ~$20B, essentially the "maintenance level" which is impossibly low to sustain. For 2012 he expects "flattish" capex vs. 2011, with a -10% decline as the "worst-case scenario." That worst-case view would put WFE spending at around $26B-$27B, far above the current WFE order run-rate.

28nm: A 1H12 story. Foundries (e.g. TSMC, GlobalFoundries) are taping out 28nm now but realistically the ramp is 1Q12-2Q12 until they can improve yields. ATMI looks to be designed into both TSMC's 28nm process chemistry and likely others (GF), and should grow revenues/wafer once 28nm ramps. NVLS also cited 28nm yield issues as a reason for recent foundry order pullbacks, but once they are resolved orders should flow again. LRCX said it has yet to ship any volume 28nm tools to major foundries.

450mm: Hurry up and wait. The major backers of 450mm (Intel, TSMC, Samsung) are getting together over the next few weeks to formalize "a unified plan/consortium," Citi's Arcuri writes. Nonetheless, with rising capital intensity driven by ever more complex steps (and new ones, e.g. EUV), tool suppliers are fine with holding off on their 450mm development, he says. NVLS is "more cautious" on 450mm wafer-size transition, citing a "deflationary outcome" seen in the shift to 300mm. LRCX, on the other hand, sees a big window of opportunity to gain share at 450mm.

EUV timeline compressed. Specifically talking about EUV, ASML expressed more confidence about the technology's ultimate viability, but time is running out to get to 60WPH targets by mid-2012, with sources still the key challenge, Arcuri noted. DRAM customers could get away with 50-60WPH for two layers, but other sectors (e.g. logic) are still uncertain. Eighteen tools are in the supply chain: 10 ordered and two more likely to order a tool each, but the other 6 are question marks in terms of timing. In the meantime, ASML plans a ~250WPH immersion tool for next year to fend off encroachment by Nikon which has gained qualifications at Samsung, TSMC, and INTC.